With the recent rapid increase in meat prices, operators are discussing the merits of smaller portions. If they serve an 8 ounce steak, they may be considering a 7.5 ounce portion. For operations with large portions, the change may be from 16 ounces to 15 ounces.
A change from 8 to 7.5 ounces is a 6.25% reduction. Everyone is familiar with the coffee cans at the local market. It is rare to find a one pound can. Actual weights are often less than one pound. Sometimes, the size of the can stays the same but the net weight changes.
Would your customers notice their serving is only 93.75% as big as last time?
They may not notice a small change in the serving and they may not care. If you notice the plates coming from the dining room have uneaten meat or fish, your current portion size may be too large. Consider a slight drop in size. The profit potential is significant.
Take a look at the big picture. If you use 800 pounds per week at $6 per pound, a drop from 8 to 7.5 ounces will save $300 (around $15,000 per year).
This strategy should not be combined with an immediate and significant price increase. Raising the price and decreasing the portion size doubles the risk of your customers objecting to your strategy.
[For my loyal readers, the bakery I wrote about when flour prices went through the roof is now under new management. They made the changes too obvious.
The size of the loaves decreased by 20% for the same price which was perceptible. They eventually raised the cost per loaf by 15%. Traffic suffered and they never regained their gross margin.]
Thursday, June 02, 2011
The Profitable Butcher - Part 2
Tracking butcher yields is essential if you decide to trim your meat and fish rather than buying portion cuts. Too often, managers treat the process with a lackadaisical attitude.
"We use the trim in ravioli. They're free." "This week's meat was fatty." "Our butcher doesn't slice the steaks evenly." "We only pay $6 per pound and the portion control cuts would cost $7." "Nothing is wasted. We make all of our stocks from scratch."
The common theme is a lack of clarity. You can't afford to butcher meat in your operation if you do not closely track the process. Butcher yields can fluctuate widely. The differences in yields need to be monitored closely.
I know an operator who carefully tracks each batch. The starting weight and number of pieces of meat are recorded. The log contains the cost per pound paid to the meat supplier. After trimming the meat and slicing the steaks, the butcher records the number of steaks, usable trim and waste. All costs flow from the starting weight and cost per pound.
This person has a well documented 3-ring binder with each butcher batch sorted by date. I went through the history and found the overall yield was very close to the restaurant's standard. More importantly, the yield from batch to batch varied by plus or minus 5%. This is a 10% spread.
Most operators do not keep these records. The time to record the batch is minimal and the gain in information is tremendous. Understanding your standard yield is key to tracking usage and gross profit.
"We use the trim in ravioli. They're free." "This week's meat was fatty." "Our butcher doesn't slice the steaks evenly." "We only pay $6 per pound and the portion control cuts would cost $7." "Nothing is wasted. We make all of our stocks from scratch."
The common theme is a lack of clarity. You can't afford to butcher meat in your operation if you do not closely track the process. Butcher yields can fluctuate widely. The differences in yields need to be monitored closely.
I know an operator who carefully tracks each batch. The starting weight and number of pieces of meat are recorded. The log contains the cost per pound paid to the meat supplier. After trimming the meat and slicing the steaks, the butcher records the number of steaks, usable trim and waste. All costs flow from the starting weight and cost per pound.
This person has a well documented 3-ring binder with each butcher batch sorted by date. I went through the history and found the overall yield was very close to the restaurant's standard. More importantly, the yield from batch to batch varied by plus or minus 5%. This is a 10% spread.
Most operators do not keep these records. The time to record the batch is minimal and the gain in information is tremendous. Understanding your standard yield is key to tracking usage and gross profit.
Wednesday, June 01, 2011
The Profitable Butcher - Part 1
Our goal is to keep the cost per portion as low as possible while maintaining the current standard. The focus is on the center of the plate. Most people break down their current meat and fish using a cost per ounce model.
There are many limitations to this approach.
Your cost per ounce may be 50 cents. If you take a piece of meat which costs $6 per pound and you lose 25% in unusable trim, your cost per pound is $8 and your cost per ounce is 50 cents.
Our first issue is the 25% unusable trim. This implies a 75% yield when we focus on our center of the plate portion. What happens if a particular piece of meat yields 80%?
Instead of 50 cents per ounce, we would only pay 46.875 cents per ounce. Is this meaningful? Do people actually see the impact? I would argue they don't see the impact clearly.
If the piece of meat weighs 10 pounds, the 50 cent per ounce model assumes 120 ounces. We would expect to yield 15 - 8 ounce steaks. The 80% yield would increase the number of steaks from 15 to 16. The same numbers are in play with only a slight change in yield. The piece of meat weighs 10 pounds and the cost per pound is $6. Only the yield changes from 75% to 80%.
The extra steak is the true benefit. Monitoring a 3.125 cents per ounce change won't be easy to explain in meetings. "we should have a slightly better profit this weekend because our cost per usable ounce decreased by 3.125 cents..."
The extra steak would cost $4 using the 75% standard at $6 per pound. Our goal is to save this $4.
Perhaps we could find a supplier who usually delivers meat which yields 80%. If we expect to purchase 10,000 - 10 pound pieces per year, we would save $40,000. The savings would occur 1 steak at a time as we gain the extra steak from each batch. Using our POS system, we can make sure we get the sales for the extra steaks and the gross profit increase will appear in our bank account.
Rather than tracking 3.125 cents per ounce, we can track these extra steaks.
There are many limitations to this approach.
Your cost per ounce may be 50 cents. If you take a piece of meat which costs $6 per pound and you lose 25% in unusable trim, your cost per pound is $8 and your cost per ounce is 50 cents.
Our first issue is the 25% unusable trim. This implies a 75% yield when we focus on our center of the plate portion. What happens if a particular piece of meat yields 80%?
Instead of 50 cents per ounce, we would only pay 46.875 cents per ounce. Is this meaningful? Do people actually see the impact? I would argue they don't see the impact clearly.
If the piece of meat weighs 10 pounds, the 50 cent per ounce model assumes 120 ounces. We would expect to yield 15 - 8 ounce steaks. The 80% yield would increase the number of steaks from 15 to 16. The same numbers are in play with only a slight change in yield. The piece of meat weighs 10 pounds and the cost per pound is $6. Only the yield changes from 75% to 80%.
The extra steak is the true benefit. Monitoring a 3.125 cents per ounce change won't be easy to explain in meetings. "we should have a slightly better profit this weekend because our cost per usable ounce decreased by 3.125 cents..."
The extra steak would cost $4 using the 75% standard at $6 per pound. Our goal is to save this $4.
Perhaps we could find a supplier who usually delivers meat which yields 80%. If we expect to purchase 10,000 - 10 pound pieces per year, we would save $40,000. The savings would occur 1 steak at a time as we gain the extra steak from each batch. Using our POS system, we can make sure we get the sales for the extra steaks and the gross profit increase will appear in our bank account.
Rather than tracking 3.125 cents per ounce, we can track these extra steaks.
Sunday, May 01, 2011
What Should My Food Cost Be?
Every month, I receive emails asking for benchmark information in every segment of our industry. Benchmarking food cost is a meaningless pursuit. Every menu has a unique set of criteria which have an impact on the gross margin. Rather than looking for a target number outside your organization, I would suggest a simpler and much more accurate way to answer the question: What should my food cost be?
People really want a method to bring their gross profit back to previous levels.
The first step in finding the answer lies in your current sales mix, food purchases and the resulting gross margin. Nobody offering a diverse, a la carte menu to their guests can expect to have a food cost % close to a utopian figure. Also, this means your competition is far from perfect. Don't focus on an unobtainable goal.
Review your purchasing data thoroughly including a month by month analysis of all key items (typically your top 25 items ranked by purchase volume in monetary terms). I would go so far as to construct a matrix to track the purchase cost of these key items on a monthly chart. Look for sharp shifts (inflection points) on the chart. Can you find the logic behind these shifts? Perhaps you have significant seasonal price changes.
You will definitely see a major shift higher in any items which require consumption of grains in their production. This is not just baked goods but also the protein items. Our animals consume the same grains we now see used in the production of the fuel we consume at the gas stations (ethanol is anywhere from 10% to 85% of the fuel at most service stations).
Find the top trends in these key items. Apply the findings to your food cost formula. If the top 25 items account for 40% of your purchases, a 10% shift higher in the cost of these items will produce a 4% increase in your purchases. If your purchases have actually increased 5.5%, the 1.5% implies the other 60% of your purchases have increased 2.5%. Every operation will have a unique profile.
Start with your top 25 items and try to cover the 4% increase in purchases. Can you lower the figure through tighter controls? Weigh the cost of tighter control against the potential gain. Implement these controls whenever the benefit outweighs the cost.
Carefully monitor waste, spoilage, theft, portion size and purchasing trends.
In the example above, a sales increase of 1.65% would cover the 5.5% increase in purchase costs if your target food cost % was 30%. You don't need to raise menu prices 5.5% to cover the increase if your goal is to maintain gross margin. A food cost % of 31.14% would produce the same gross profit as before if your cover count is stable and your check average increase hits your 1.65% target.
People really want a method to bring their gross profit back to previous levels.
The first step in finding the answer lies in your current sales mix, food purchases and the resulting gross margin. Nobody offering a diverse, a la carte menu to their guests can expect to have a food cost % close to a utopian figure. Also, this means your competition is far from perfect. Don't focus on an unobtainable goal.
Review your purchasing data thoroughly including a month by month analysis of all key items (typically your top 25 items ranked by purchase volume in monetary terms). I would go so far as to construct a matrix to track the purchase cost of these key items on a monthly chart. Look for sharp shifts (inflection points) on the chart. Can you find the logic behind these shifts? Perhaps you have significant seasonal price changes.
You will definitely see a major shift higher in any items which require consumption of grains in their production. This is not just baked goods but also the protein items. Our animals consume the same grains we now see used in the production of the fuel we consume at the gas stations (ethanol is anywhere from 10% to 85% of the fuel at most service stations).
Find the top trends in these key items. Apply the findings to your food cost formula. If the top 25 items account for 40% of your purchases, a 10% shift higher in the cost of these items will produce a 4% increase in your purchases. If your purchases have actually increased 5.5%, the 1.5% implies the other 60% of your purchases have increased 2.5%. Every operation will have a unique profile.
Start with your top 25 items and try to cover the 4% increase in purchases. Can you lower the figure through tighter controls? Weigh the cost of tighter control against the potential gain. Implement these controls whenever the benefit outweighs the cost.
Carefully monitor waste, spoilage, theft, portion size and purchasing trends.
In the example above, a sales increase of 1.65% would cover the 5.5% increase in purchase costs if your target food cost % was 30%. You don't need to raise menu prices 5.5% to cover the increase if your goal is to maintain gross margin. A food cost % of 31.14% would produce the same gross profit as before if your cover count is stable and your check average increase hits your 1.65% target.
Tuesday, April 05, 2011
Can Higher Sales Offset The Rapid Food Cost Inflation?
As operators find more diners in their restaurants, they are seeing major increases in their invoices for food and supplies. Higher prices for food, utilities, gas for vehicles, paper, linen and other supplies are shrinking margins. Can your higher sales numbers offset the rapid rise in food cost?
A 10% rise in your invoices will cost you 3.5% of sales at a 35% previous food cost level.
This may be too much to take if you rely heavily on coupons and discounts to attract patrons. On the other hand, most operators would gladly part with 3.5% of sales to see more revenue. Many of these people will eat the cost increases for some time. They will follow their competition in any price increases. Fearing a drop in business just as they see a pick up, restaurant managers are holding prices in check at many locations.
Is this a good strategy? Happy to have survived the recent bloodbath, many people I speak with are happy to wait the competition out. They quote $5 foot longs, 2 entrees and an appetizer for $20, 2 pizzas for 1 nights, and numerous competitors offering a meal with full service for $9.95. Patrons have downsized from prime steaks to upscale burgers. Burger places are popping up everywhere I go.
If you decide to lead in the price increase game, I would expect your competition to follow pretty quickly. Everyone sees higher prices at the supermarket and gas pump. Many patrons expect increases. By taking the lead, you can set your own pace for price increases.
A 10% rise in your invoices will cost you 3.5% of sales at a 35% previous food cost level.
This may be too much to take if you rely heavily on coupons and discounts to attract patrons. On the other hand, most operators would gladly part with 3.5% of sales to see more revenue. Many of these people will eat the cost increases for some time. They will follow their competition in any price increases. Fearing a drop in business just as they see a pick up, restaurant managers are holding prices in check at many locations.
Is this a good strategy? Happy to have survived the recent bloodbath, many people I speak with are happy to wait the competition out. They quote $5 foot longs, 2 entrees and an appetizer for $20, 2 pizzas for 1 nights, and numerous competitors offering a meal with full service for $9.95. Patrons have downsized from prime steaks to upscale burgers. Burger places are popping up everywhere I go.
If you decide to lead in the price increase game, I would expect your competition to follow pretty quickly. Everyone sees higher prices at the supermarket and gas pump. Many patrons expect increases. By taking the lead, you can set your own pace for price increases.
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